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What is the term used when two or more existing companies decide to liquidate their business and establish a new company to acquire their assets and liabilities?
  • a)
    Absorption
  • b)
    Reconstruction
  • c)
    Amalgamation
  • d)
    Merger
Correct answer is option 'C'. Can you explain this answer?
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What is the term used when two or more existing companies decide to li...
Amalgamation is the process in which two or more existing companies decide to liquidate their businesses and form a new company to acquire their assets and liabilities.
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What is the term used when two or more existing companies decide to li...
Amalgamation is the term used when two or more existing companies decide to liquidate their business and establish a new company to acquire their assets and liabilities. It involves the merger of two or more companies into a single entity, which then assumes the assets and liabilities of the merging companies.

Here is an explanation of the term "amalgamation":

Definition of Amalgamation:
Amalgamation refers to the process of combining two or more companies into one single entity. It involves the liquidation of the existing companies and the creation of a new company that acquires their assets and liabilities.

Process of Amalgamation:
The process of amalgamation typically involves the following steps:

1. Decision-making: The management of the companies involved decides to merge their businesses and form a new entity.

2. Valuation: The companies determine the value of their assets, liabilities, and shares to determine the exchange ratio for the amalgamation.

3. Agreement: An amalgamation agreement is prepared, which outlines the terms and conditions of the merger, including the exchange ratio, treatment of employees, and other relevant details.

4. Approval: The amalgamation agreement is presented to the shareholders and other stakeholders of the companies for their approval. It may require shareholder approval, regulatory approvals, and court approvals, depending on the jurisdiction.

5. Liquidation: The existing companies are liquidated, and their assets and liabilities are transferred to the new entity.

6. Formation of new company: A new company is established, which assumes the assets and liabilities of the merging companies.

7. Share issuance: The shareholders of the merging companies receive shares in the new company based on the exchange ratio determined in the agreement.

Benefits of Amalgamation:
Amalgamation offers several benefits, including:

1. Economies of scale: The merged entity can benefit from economies of scale, as it can reduce costs and improve efficiency by combining resources and operations.

2. Increased market share: The amalgamation can lead to an increase in the market share of the new entity, allowing it to compete more effectively in the market.

3. Diversification: The merged entity can diversify its product or service offerings, reducing its dependence on a single line of business.

4. Synergy: The combined expertise, resources, and capabilities of the merging companies can create synergies and enhance the overall value of the new entity.

Conclusion:
Amalgamation is a process where two or more existing companies decide to liquidate their business and establish a new company to acquire their assets and liabilities. It involves the merger of the companies into a single entity, which can benefit from economies of scale, increased market share, and diversification. The process typically involves several steps, including decision-making, valuation, agreement, approval, liquidation, formation of a new company, and share issuance.
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What is the term used when two or more existing companies decide to liquidate their business and establish a new company to acquire their assets and liabilities?a)Absorptionb)Reconstructionc)Amalgamationd)MergerCorrect answer is option 'C'. Can you explain this answer?
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